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Structural Balances and All That: Which Indicators to Use in Assessing Fiscal Policy

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  • Nigel Andrew Chalk
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    Abstract

    Structural indicators of a country's fiscal position are regularly used as estimates of both discretionary changes in fiscal policy and the effect of fiscal policy on aggregate demand. This paper looks at such indicators and evaluates, from a theoretical standpoint and from empirical case studies, their usefulness in measuring the size of discretionary policy action or fiscal demand stimulus. Two propositions are examined in detail: first, that the change in the primary structural balance provides a better indicator of discretionary fiscal policy than does the change in the primary balance; and second, that the change in the structural balance is a good indicator of the demand stimulus arising from changes in the fiscal position. In addition, the paper discusses measurement problems relating to structural balances and the use of the fiscal impulse as an alternative to structural balances.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/101.

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    Length: 50
    Date of creation: 01 Jun 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/101

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    1. Blanchard, Olivier Jean & Kiyotaki, Nobuhiro, 1987. "Monopolistic Competition and the Effects of Aggregate Demand," American Economic Review, American Economic Association, vol. 77(4), pages 647-66, September.
    2. Braconier, Henrik & Holden, Steinar, 1999. "The Public Budget Balance - Fiscal Indicators and Cyclical Sensitivity in the Nordic Countries," Working Paper 67, National Institute of Economic Research.
    3. Adam S. Posen, 1998. "Restoring Japan's Economic Growth," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 35, 1st quart.
    4. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    5. Olivier Blanchard & Roberto Perotti, 2002. "An Empirical Characterization Of The Dynamic Effects Of Changes In Government Spending And Taxes On Output," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1329-1368, November.
    6. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S103-26, October.
    7. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
    8. Robert P. Hagemann, 1999. "The Structural Budget Balance - The IMF's Methodology," IMF Working Papers 99/95, International Monetary Fund.
    9. Sweta Chaman Saxena & Valerie Cerra, 2000. "Alternative Methods of Estimating Potential Output and the Output Gap - An Application to Sweden," IMF Working Papers 00/59, International Monetary Fund.
    10. Ahsan S. Mansur & Richard D. Haas & Peter S. Heller, 1986. "A Review of the Fiscal Impulse Measure," IMF Occasional Papers 44, International Monetary Fund.
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    Cited by:
    1. Luca Agnello & Jacopo Cimadomo, 2012. "Discretionary Fiscal Policies over the Cycle: New Evidence Based on the ESCB Disaggregated Approach," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 43-85, June.
    2. Jeromin Zettelmeyer & Ivanna Vladkova Hollar, 2008. "Fiscal Positions in Latin America:Have They Really Improved?," IMF Working Papers 08/137, International Monetary Fund.
    3. Daniel Kanda, 2011. "Modeling Optimal Fiscal Consolidation Paths in a Selection of European Countries," IMF Working Papers 11/164, International Monetary Fund.
    4. Renee Philip & John Janssen, 2002. "Indicators of Fiscal Impulse for New Zealand," Treasury Working Paper Series 02/30, New Zealand Treasury.
    5. Mati, Amine & Thornton, John, 2008. "The exchange rate and fiscal consolidation episodes in emerging market economies," Economics Letters, Elsevier, vol. 100(1), pages 115-118, July.
    6. Richard M. Bird, 2003. "Fiscal Flows, Fiscal Balance, and Fiscal Sustainability," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0302, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    7. Gábor P. Kiss, 2007. "One-off and off-budget items: An alternative approach," MNB Conference Volume, Magyar Nemzeti Bank (the central bank of Hungary), vol. 1(1), pages 18-27, December.

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